In my last post, I talked about how USTR is continuing on with the Section 301 proceedings in several cases related to digital services taxes. In its announcement, USTR said: "In January, USTR found that the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom were subject to action under Section 301 because they discriminated against U.S. digital companies, were inconsistent with principles of international taxation, and burdened U.S. companies." With regard to the standard used by USTR to determine whether discrimination exists, you can see this in action in the Section 301 case against France's digital services tax here. (I'm going to leave international tax rules and "burdens" on U.S. companies aside in this post.)
Two members of Congress -- Congresswoman Suzan DelBene (D-WA) and Congressman Darin LaHood (R-IL) -- agree that these digital services taxes are discriminatory. Here's something from a 2019 press release they put out:
“The French tax on digital services will disproportionately affect U.S. technology exporters by setting a threshold that effectively carves out all French competitors,” wrote DelBene and LaHood. They added, “We encourage you to send a strong message to France that the United States agrees global tax rules must be updated for the digital age, but discriminatory taxes against U.S. firms are not an appropriate solution.”
In March of 2019, the French government proposed a unilateral DST on digital advertising, online platforms, and the transfer of data specifically aimed at U.S. technology companies. Under the proposal, U.S. companies could be charged up to five percent on gross revenue and it would be enacted retroactively to January 1, 2019. The French have made it explicitly clear that this proposal is designed for going after American businesses, and Finance Minister Lemaire has indicated this will raise the French over 500 million euros. ...
A March 29, 2021 letter they sent to Ambassador Tai along the same lines is here.
The question I want to raise on this issue is, who should decide whether the digital services taxes are discriminatory? I understand that USTR and others in the United States think they are discriminatory, but I want to hear both sides of the case. The UK and India clearly think otherwise:
“We want to make sure tech firms pay their fair share of tax,” a UK government spokesperson told Inside U.S. Trade, arguing the British measure is “reasonable, proportionate and non-discriminatory.”
...
“Should the U.S. proceed to implement these measures,” the spokesperson continued, “we would consider all options to defend UK interests and industry.”
...
India echoed the UK in defending its measure, with a representative of the Indian Ministry of Commerce and Industry telling local media the country’s “equalisation levy” is “not discriminatory and only seeks to ensure a level-playing field.”
I'd like to hear the governments imposing these taxes flesh out their argument and have the question adjudicated by a neutral party, with an examination of questions such as: What exactly do we mean by "discrimination"? And, is the measure justified by a public policy objective? For whatever reason, it does not seem as though USTR is planning to bring a WTO case on these issues (Hufbauer and Lu set out the basics of a WTO claim here). But if the United States really wants to press for changes in other countries' policies, it probably needs to do more than just assert that the taxes are discriminatory and then take unilateral action. Rather, it needs to get the question before a neutral arbitrator who can make an assessment. Without that, other countries may not take the allegation very seriously, and will just retaliate if USTR imposes tariffs under Section 301.
